Conditions for performance of contracts under Reg. 70 Public Contracts Regulations 2015 [and pause]

Reg. 70 of the Public Contracts Regulations 2015 (PCR2015) transposes the rules of Article 70 of Directive 2014/24 on conditions for the performance of contracts, or contract performance clauses, whereby contracting authorities may lay down special conditions relating to the performance of a contract, provided that they are linked to the subject-matter of the contract within the meaning of reg.67(5) PCR2015 / art 67(3) Dir 2014/24, and indicated in the call for competition or in the procurement documents. It also clarifies that those conditions may include economic, innovation-related, environmental, social or employment-related considerations.

I am not a fan of such contract compliance clauses because they are an easy way of imposing restrictions on participation of economic agents by including forward-looking criteria that would require significant monitoring after contract award. My argument is as follows:

An (admittedly controversial) way in which competition could be distorted and equal treatment not guaranteed would be by means of the introduction of requirements that are not possible to validate at tender evaluation stage by the contracting authority, independent certifying companies or other tenderers—or, in the event of a review of the contracting decision, by the review board or authority. Such requirements would be largely related to ‘contract compliance’ conditions or ‘conditions for performance of contracts’ and to commitments by tenderers to accept the contractual obligation to develop a certain activity or to comply with certain forward-looking requirements. This is in principle openly accepted in the modernised rules (see reg.70 PCR2015 and art 70 dir 2014/24). However, it is important to stress that the CJEU has recently quashed the use of this provision for purposes such as the establishment of mínimum wage requirements, given that it would prevent economic operators from exploiting their competitive (cost) advantages, which in my opinion comes to restrict very significantly the virtuality of this provision. In that regard, see Case C-549/13 Bundesdruckerei [2014] pub. electr. EU:C:2014:2235.].

In these cases, competition could be rather easily distorted by strategic tenderers offering to comply with those additional requirements ex ante—thereby formally complying with the award criterion—and breaching the contractual covenant ex post—being then subject to penalties or other contractual remedies, which are largely irrelevant for analytical purposes [in similar terms, harbouring doubts about the legality of forward-looking award criteria, see Racca, Cavallo Perin & Albano, ‘Competition in the Execution Phase of Public Procurement’ (2011) 41(1) Public Contract Law Journal 89].

Ensuring that the award of contracts according to this type of award criteria— particularly if they are given significant weight by the contracting authority—does not result in discrimination or a distortion of competition through the strategic behaviour of tenderers (and, eventually, of contracting authorities) would require a significant amount of monitoring and surveillance after the award of the contract—which is costly and difficult to conduct by any agent other than the parties to the contract. In such circumstances, the room for discrimination and distortions of competition is widened and, consequently, the possibilities for the exercise of unlimited discretion and for the generation of discriminatory and anti-competitive outcomes might be unduly increased. 

In this regard, unless very relevant circumstances make the adoption or weighting of such criteria essential or difficult to avoid in relation to the subject-matter of the contract, contracting authorities are bound not to adopt, or to give marginal weight to, award criteria of a forward-looking nature that are not possible to verify or validate at tender evaluation stage (or, more generally, before contract implementation) [on the ban against using award criteria that are not possible to verify, see Case C-448/01 EVN and Wienstrom [2003] ECR I-14527 52. However, cf. with the situation in Case C-19/00 SIAC Construction [2001] ECR I-7725.].

[Pause] I pause for now because this daily commentary is much less fun since Pedro had to take a break. The added value of discussing each other's views is difficult to create with a 4-5 day lag.

Hence, I will resume commenting the provisions of the PCR2015 once Pedro has had time to catch up, which will probably be from Monday 15 June. In the meantime, why not listen to our interview in his first podcast in the PPP series? Click here.

Postscript:  Pedro has now caught up, and his views are here.